Cap Rate Calculator
Instantly calculate cap rate, NOI, gross rent multiplier, and monthly cash flow for any rental property — free, private, and no sign-up required.
How Cap Rate Is Calculated
The capitalization rate formula has two steps. First, calculate Net Operating Income (NOI): multiply your gross annual rent by (1 − vacancy rate) to get effective gross income, then subtract annual operating expenses. Second, divide NOI by the property value and multiply by 100 to get the cap rate percentage.
For example, a $400,000 property generating $30,000 annual rent with 5% vacancy and $8,000 expenses yields an NOI of $20,500, producing a cap rate of 5.13%. This number lets you compare properties as if you paid cash — no mortgage assumptions involved.
Cap Rate vs. Cash-on-Cash Return
Cap rate is an unlevered metric — it ignores your mortgage entirely. Cash-on-cash return, by contrast, factors in financing and measures actual cash yield on your invested equity. Use cap rate to compare properties on equal footing. Use cash-on-cash once you know your financing terms. Both metrics together give you a complete picture of investment quality.
The gross rent multiplier (GRM) shown in this calculator is an even faster screening tool. It equals property value divided by annual gross rent. A GRM under 10 typically signals a good deal in mid-tier markets, while prime urban markets often trade at GRM 15–25.
What Is a Good Cap Rate?
Cap rate benchmarks vary by market type. Class A properties in gateway cities (New York, San Francisco, Los Angeles) typically trade at 3–5% cap rates because of lower risk and high appreciation potential. Secondary markets like Phoenix, Nashville, and Austin see 5–7%. Tertiary and rural markets may yield 8–12% but carry higher vacancy and liquidity risk.
As a rule of thumb: a higher cap rate means more income relative to price, but also higher perceived risk. A lower cap rate signals a premium asset in a stable market. The "right" cap rate depends on your risk tolerance, financing costs, and local market context. Always compare to recent comparable sales in the same submarket.
Tips to Improve Your Cap Rate
You can increase cap rate by either raising NOI or paying less for the property. On the income side: reduce vacancy through responsive management, raise rents to market rate at lease renewal, and add ancillary income (parking, laundry, storage). On the expense side: shop insurance annually, implement preventive maintenance to reduce emergency repairs, and self-manage if cost-effective in your market. Even small improvements compound significantly — reducing expenses by $1,200/year on a $300,000 property improves your cap rate by 0.4 percentage points. Last updated: April 2026 using standard real estate investment formulas.